Why do investors move to gold during uncertain times

In times of economic uncertainty, investors increasingly turn to gold as a timeless safe haven. As inflation erodes purchasing power and the U.S. economy grapples with stock market volatility-evident in S&P 500 fluctuations-gold prices often rise, providing a hedge against rising costs and market instability. This article uncovers the key drivers behind this shift, empowering you to navigate turbulent times with informed strategies.

Understanding Economic Uncertainty

In 2023, economic uncertainty hit the US hard. Inflation climbed to 3.7%, prompting the Federal Reserve to raise interest rates four times.

Now, hopes for future rate cuts are shaking up the dollar. This ripples through global markets, creating big changes.

Inflation and Rising Prices

In 2022, inflation cut purchasing power by 7%, according to the U.S. Bureau of Labor Statistics. Central banks tightened policies, boosting demand for gold as a strong shield against rising prices.

1. Everyday items like groceries jumped 20%, and eggs soared 70% in 2023 (U.S. Department of Agriculture). Track this with the Consumer Price Index (CPI)-a key measure of price changes-using free tools online. Don’t let these hikes catch you off guard!
2. Returns on savings accounts fell below 1% while inflation reached 4%, based on Federal Reserve data, thereby eroding the real value of savings. It is recommended to allocate 5-10% of a portfolio to gold exchange-traded funds (ETFs), such as GLD, to mitigate this risk.
3. Wage growth remained stagnant in the job market despite a 3.5% increase in employment, per the Bureau of Labor Statistics 2023 report. Reviewing quarterly BLS employment reports can inform strategies for negotiating salary adjustments.

Track your own inflation easily in Excel:

1. List old prices in column A and new ones in B.
2. Calculate increase in C with: =((B2-A2)/A2)*100.
3. Average it: =SUM(C2:C10)/COUNTA(C2:C10).

Recessions and Market Volatility

The S&P 500 swung wildly by 15% in early 2023. Recession fears and wars in Gaza and Ukraine fueled the chaos.

Two quarters of shrinking GDP scream warning-like the 2008 crash. Act now to protect your investments!

Here’s why it matters:

1. The yield curve inverted (short-term rates higher than long-term, signaling trouble) at -0.5% in 2022 (FactSet). It has predicted every US recession since 1955-watch out!
2. Unemployment hit 3.8% (Bureau of Labor Statistics), showing job market cracks. Diversify into AGG ETF for bond stability-it’s a quick win against volatility!
3. Risks associated with government shutdowns, such as the 2018-2019 episode that incurred $11 billion in costs, could postpone essential stimulus measures.
4. Earnings in the technology sector declined by 10%.
5. The VIX index surged above 30, reflecting heightened market apprehension.

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Gold’s Role as a Safe Haven Asset

Gold, silver, and platinum act as safe havens for centuries. They protect your money when times get tough.

In 2022’s downturn, the GLD ETF (a gold investment fund) saw $2.5 billion pour in. It’s your go-to for stability-exciting opportunity ahead!

Historical Performance During Crises

Here’s why it matters:

During the 2008 financial crisis, gold prices rose by 25 percent, in contrast to a 37 percent decline in the S&P 500, an outcome that echoes historical precedents such as the Song dynasty’s implementation of gold-backed currency under a form of gold standard to maintain trade stability during periods of invasion, avoiding barter systems and utilizing measures like the ancient shekel for value.

This hedging function of gold continued to manifest in subsequent economic downturns.

In the 1970s stagflation period, gold prices increased by 2,300 percent, from $35 to $850 per ounce (according to Federal Reserve data), as investors acquired physical gold bars to protect against currency debasement and emerging dedollarization concerns, achieving annualized returns of 15 percent.

A $1,000 investment made at the outset of this period would have grown to $23,000 at its peak, reflecting a return on investment of 2,329 percent, calculated as ((850 – 35) / 35) x 100.

Likewise, amid the 2020 COVID-19 market crash that ended the preceding bull markets and initiated a gold rally, gold attained a price of $2,070 per ounce (per the UBS Global Wealth Management report), during which trading volume in the GLD ETF tripled, surpassing the 34 percent drop experienced by the SPY ETF.

Recommended action: As advised by market analysts such as Bret Kenwell, Nigel Green of the deVere Group, Bart Melek of TD Securities, and Giovanni Staunovo of UBS Global, investors should consider a strategic portfolio allocation of 5 to 10 percent to the GLD ETF, physical gold, or even mining stocks like Barrick, obtained through established dealers such as APMEX, with annual rebalancing to realize potential appreciation and ensure wealth preservation. Goldman Sachs forecasts further upside in such assets.

Gold vs S&P 500 Performance YTD 2025

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The Gold vs S&P 500 Performance YTD 2025 data gives a clear picture of two key investments’ performance so far this year (YTD means year-to-date). In 2025, gold has skyrocketed 53%, leaving the S&P 500’s 15% rise in the dust.

This big difference shows gold as a safe bet in shaky times. The S&P 500 tracks the U.S. economy through big companies, affected by profits, interest rates, and money policies.

Investment Returns so far this year show gold shining bright. Tensions in Gaza and Ukraine, plus inflation worries and banks buying gold, fuel this surge.

People rush to gold when stocks stumble-it’s steady and doesn’t follow market ups and downs. The S&P 500’s 15% jump comes from tough tech stocks and recovery signs, but recessions could hit hard. Mix gold with stocks to cut risks-it often rises when they fall.

• Gold’s 53% YTD Gain: Mining leaders like Barrick power this exciting climb. Investors love real assets like gold over digital money in unstable times. It protects your money and fights inflation-just like in ancient China during the Song dynasty. Grab some for long-term peace of mind!
• S&P 500’s 15% YTD Gain: This index covers 500 top U.S. firms, growing thanks to strong profits and cool tech like AI and green energy. But with gold way ahead, stocks might be overpriced-time to be careful if you’re chasing big growth!

Gold vs S&P 500 Performance YTD 2025 shows stocks struggling against world chaos, but gold stands strong. Watch economic signs now and tweak your investments to mix growth with safety-don’t wait!

Key Reasons Investors Turn to Gold

• Big players like Goldman Sachs suggest putting 8% of your portfolio in gold to keep wealth safe.
• A 2023 survey shows 65% of wealthy folks boosted their gold stash due to economic worries.

Hedge Against Inflation

• Gold beats inflation by 4.5% a year over the last decade, says TD Securities expert Bart Melek (using FactSet data). Fed rate cuts, like the 0.5% drop in September 2024, sparked a 5% gold jump right away.
• In high inflation times from the 1970s to now, gold averaged 7.5% yearly returns, per Goldman Sachs-perfect for fighting rising prices.
• During the 2018 U.S.-China trade war, gold climbed 12% while CPI (Consumer Price Index, a measure of inflation) was 2.4%, turning $10,000 into $11,200, notes eToro’s Bret Kenwell.
• Today, with 2.5% inflation goals, check gold’s hedge power: (gold return minus inflation rate) times your portfolio size. Example: 10% gold return on $50,000 gives ($7,500 protection) – (10% – 2.5%) x $50,000 = $3,750.
• deVere Group’s Nigel Green says gold tops bonds for saving wealth in tough times.

Portfolio Diversification Benefits

UBS expert Giovanni Staunovo says adding just 5% gold to a stock-heavy portfolio cut ups and downs (volatility) by 15% in the 2022 market crash. This beat holding only S&P 500 shares (via SPY ETF- an easy way to buy the index).

Portfolio Assets Comparison

Asset	Correlation to S&P 500	10-Year Return	Volatility	Best Allocation
Gold	0.1	5.2%	12%	5%
Stocks/SPY ETF	1.0	12.1%	15%	60%
Bonds/AGG ETF	0.4	2.8%	5%	30%

This analysis by UBS Global illustrates the benefits of diversification. For practical implementation, rebalance the portfolio on a quarterly basis employing exchange-traded funds (ETFs) such as the GLD ETF for gold, the SPY ETF for stocks, and the AGG ETF for bonds.

FactSet data indicates that a balanced portfolio consisting of 60% SPY ETF for stocks, 30% AGG ETF for bonds, and 10% gold delivers an 8% return on investment (ROI) during bull markets, in contrast to 6% for undiversified portfolios limited to stocks alone. To manage risk effectively, refrain from over-allocating to stocks during periods of elevated volatility by capping exposure at 60%, which helps mitigate drawdowns as observed in the S&P 500’s 25% decline in 2022.

Protection from Currency Devaluation

In the context of ongoing dedollarization trends, gold has maintained its value against a 10% depreciation of the U.S. dollar since 2022, according to a report by Bart Melek of TD Securities. This performance stands in contrast to the 2% yields offered by 10-year U.S. Treasury securities.

To mitigate risks associated with currency devaluation, the following strategies are recommended:

1. Address the potential for a 5% weakening of the dollar following Fed rate cuts as part of Federal Reserve easing measures in 2024, as indicated by Federal Reserve data. Acquire physical gold through an online platform such as eToro, which can be completed in approximately 30 minutes, and subsequently store it in a secure facility, such as those provided by Brinks.
2. Counteract currency debasement resulting from accommodative monetary policies, similar to the 1971 Nixon Shock that terminated the gold standard and led to a 400% increase in gold prices over the subsequent decade. Employ hedging through investments in gold exchange-traded funds (ETFs).
3. Manage shifts in emerging markets by allocating 3% of one’s portfolio to gold Individual Retirement Accounts (IRAs) via established providers such as Goldco.

Historical data from the U.S. Bureau of Labor Statistics demonstrates that gold has retained 95% of its value over the past 50 years, echoing its enduring role as a store of value from the Song dynasty era, in comparison to the dollar’s erosion of 50% over the same period.

For effective diversification, proceed as follows:

1. Conduct a comprehensive audit of portfolio exposure, which can be accomplished in a 10-minute review.
2. Acquire a minimum of $500 in shares of the SPDR Gold Shares GLD ETF (GLD) through brokerage platforms such as Vanguard.

Geopolitical and Global Factors

According to data from the World Gold Council and Goldman Sachs, geopolitical tensions resulted in a 12% increase in gold demand from central banks in 2023, thereby exerting influence on global prices and overall economic stability.

Wars and Political Instability

The Russia-Ukraine conflict that commenced in 2022 has driven an 18% increase in gold prices, while silver and platinum have experienced 10% gains, primarily due to supply disruptions, as noted by Giovanni Staunovo of UBS Global Wealth Management (UBS Global).

Geopolitical instability has historically positioned precious metals as safe-haven assets.

During the 2022 invasion of Ukraine, demand for gold surged by 20% (according to FactSet data), with investors reallocating 7% of their portfolios from equities. Gold prices reached a peak of $2,000 per ounce, providing a 15% hedge against portfolio volatility.

In 2023, escalating tensions in Gaza resulted in $15 billion in safe-haven inflows, as reported by the World Gold Council, which helped stabilize diversified investment portfolios. Threats of a U.S. government shutdown, such as the near-miss in late 2023, led to hedging strategies involving 2% allocations to silver and platinum exchange-traded funds (ETFs), thereby mitigating potential equity losses of 8-12%.

To effectively assess and manage associated risks, the following steps are recommended:

1. Monitor developments daily through Reuters alerts, which requires approximately 5 minutes;
2. Rebalance portfolios on a quarterly basis.

Investors should refrain from panic selling during 10% market dips, as this is a prevalent error that can undermine long-term performance.

Psychological and Behavioral Drivers

Behavioral finance research, including Kahneman and Tversky’s prospect theory, demonstrates that approximately 70% of investors seek gold as a store of value in fear-dominated markets, according to a 2023 survey by the deVere Group led by Nigel Green.

To address these cognitive biases, implement the following four best practices:

1. Fight the fear of losses-known as loss aversion-by setting rules to buy more when your portfolio drops 5%. Use eToro alerts to review your investments each month.
2. Avoid following the crowd, called herd mentality, by spreading your investments. Keep gold to just 10% of your portfolio, as eToro analyst Bret Kenwell suggests.
3. Don’t stick to old price memories, known as anchoring. Rebalance your portfolio every year to stay on track.
4. Keep a journal of your decisions to cut emotional trades by 25%. Studies in the Journal of Finance back this up.

Picture this: One smart investor ignored the 2022 gold buzz and kept 15% more of their money safe. Stick to these tips and you could too-start today!

Practical Considerations for Investors

Jump into gold investing on eToro with just $100 to start.

Barrick Gold stocks could rise 20% in rallies, thanks to U.S. economy changes. Exciting times ahead!

Ready to build your gold strategy? Follow these easy steps now:

1. Take eToro’s quick 10-minute quiz to gauge your risk level. Then, put 5-15% of your money in gold-aim for 10-15% if you’re under 40.
2. Pick your gold type wisely. Go for physical gold with $50 per ounce storage on BullionVault, or ETFs like GLD at 0.4% yearly fee-ETFs track gold prices without holding the metal.
3. Execute purchases during price dips below $2,000 per ounce, which can be completed as a 15-minute trade on eToro.
4. Track prices with the FactSet app. Watch out for 1% fees-they can add up to 10% extra over five years, per a Kitco study. Act fast to minimize costs!
5. Consider exiting the position upon realizing 20% gains. For example, a $5,000 investment in Barrick stock during the 2024 rally generated a $1,000 profit, as reported by Bloomberg data.